Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949

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Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

A review on palm oil biodiesel as a source of renewable fuel

S. Mekhilef a,∗ , S. Siga a , R. Saidur b
a
Department of Electrical Engineering, University of Malaya, 50603 Kuala Lumpur, Malaysia
b
Department of Mechanical Engineering, University of Malaya, 50603 Kuala Lumpur, Malaysia

a r t i c l e i n f o a b s t r a c t

Article history: The demand of increasing price in fossil fuel has prompted the global oil industry to look at the alternative
Received 30 November 2010 sources of fuel from renewable energy source which is biodiesel. Biodiesel is considered as better option
Accepted 27 December 2010 because of its environmental friendly characteristics while giving almost the same functional properties
like fossil fuels.
Keywords: This paper will focus on the biodiesel produced in Malaysia. Palm oil is the main raw stock for biodiesel
Alternative fuel
production in Malaysia as the country is one of the leading palm oil producers in the world. There are many
Renewable energy
advantages and disadvantages from the economical social and environmental aspects in the Malaysian
Palm oil biodiesel
Technology
biodiesel production in specific palm oil biodiesel. The aim of this paper is to analyze the past, current
Exporter and future of palm oil biodiesel industry in Malaysia.
This paper includes the technology aspect used in the palm oil biodiesel production and characteristics
of pure palm oil biodiesel to meet the international market standard. Malaysia faces tough competition
from other biodiesel producers like Indonesia and Brazil. The scope of this study covers the worldwide
biodiesel development in brief in continuation with the challenges faced by Malaysia in becoming the top
biodiesel exporter in the world with the advantages and disadvantage of using palm oil as the feedstock.
© 2011 Elsevier Ltd. All rights reserved.

Contents

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1938
2. Scope of the paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1938
2.1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1938
2.1.1. Raw stock for biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1938
2.1.2. Palm oil as raw stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1939
2.1.3. Palm oil biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1939
3. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1939
3.1. Perspective on Indonesian versus Malaysian palm oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1939
3.2. Palm oil biodiesel versus other feedstock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1940
3.3. Palm oil and Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1940
3.4. Biodiesel production technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1941
3.5. Pure palm oil biodiesel characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1942
4. Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1943
4.1. Past and current market trend of palm oil biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1943
4.1.1. Biodiesel projects in Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1944
4.1.2. Palm oil biodiesel and international standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1944
4.1.3. Biodiesel development worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1944
4.1.4. Global Competition for palm oil production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1945
4.2. Challenges and steps taken by Malaysian government to sustain palm oil biodiesel development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1945
4.2.1. Cost standard of palm oil biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1945
4.2.2. Export barrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1946
4.2.3. Government incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1947

∗ Corresponding author. Tel.: +60 3 7967 6851; fax: +60 3 7967 5316.
E-mail address: saad@um.edu.my (S. Mekhilef).

1364-0321/$ – see front matter © 2011 Elsevier Ltd. All rights reserved.
doi:10.1016/j.rser.2010.12.012
1938 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949

4.2.4. Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1947

4.2.5. Feedstock for bio-diesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1947
4.3. Advantages of palm oil biodiesel for Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1948
4.4. Disadvantages of palm oil biodiesel for Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1948
5. Conclusion and suggestions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1948
5.1. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1948
5.2. Future of biodiesel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1949
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1949

1. Introduction vate businesses which is produced from farmers that grow various
fuel crops. The drawbacks from fossil fuels like high market price
Every form of energy has its own source. In the earth, there are and negative impact on the environment has driven the search for
several forms of energy sources such as solar power from sun which an alternative and renewable energy source. Biofuels are identified
radiates energy, nuclear power, wave energy which results from as a possible replacement for the fossil fuels where countries like
moon gravitational pull and earth geothermal energy which origi- Brazil and US are promoting ethanol as potential biofuel derived
nates from earth’s deep core. In comparison of all available energy from sugar cane and corn [3].
sources in the world, solar energy is the largest and as long the sun In recent times, world has been paying attention to other biofu-
shines; it will remain the largest world energy source [1]. els especially biodiesel. European countries are playing important
Current world energy situation is heavily dependent on fossil role in import and export of biodiesel. Biodiesel is known as a non-
fuels and coal which a non-renewable energy source. These energy petroleum diesel. It is produced biologically from the vegetable oil
sources may deplete in time if proper energy management actions and animal fats using transesterification process. Varieties of feed-
are not taken soon which questions the energy security of the stock have been identified as potential biodiesel raw stocks like
future. The best option to handle this problem is the introduction rapeseed and soybeans in US and palm oil and jatropha in Asian
of renewable energy sources and its increased role in addressing countries. In recent years, biodiesel from palm oil and jatropha has
the world energy need. been identified as renewable energy source with huge potential in
Increasingly, renewable energy in the form of biodiesel is getting the future.
attention from the world countries due to the environment friendly Malaysia is a leading palm oil producer, therefore Malaysia in
characteristics, while it still able to be diesel engine fuel without the past have focused on palm oil as raw stock used for biodiesel
requiring any complex modifications to the engine itself. Biodiesel production. This paper takes an in depth look at the palm oil used
also has its advantage of abundance of raw stock which confirms for the production of biodiesel.
continuous raw material supply [2]. Although in the past, several papers have been presented in this
Biodiesel is an environmentally friendly, renewable energy subject, this paper differs as it discusses not only the positive side
source that could also produce cost savings for taxpayers and pri- but also the negative side of Malaysian palm oil biodiesel industry.
This paper reviews the comparison of Malaysian biodiesel industry
with other biodiesel producers analyzing the competitiveness of
Malaysia in the world biodiesel market.
Nomenclature

ASTM American Society for Testing and Materials 2. Scope of the paper
CPO crude palm oil
DBKL Dewan Bandaraya Kuala Lumpur Biodiesel production is facing several issues and challenges in
DNA deoxyribonucleic acid the form of tough global competition, feedstock issue, food versus
EU European Union fuel war, sustainability, and limited land for use and deforestation.
IFC International Finance Corporation The scope of this paper is to collect and analyze the data of palm
ISO International Standards Organization oil biodiesel in Malaysia. The objective is to determine their per-
MPOB Malaysian Palm Oil Board formance and their position in the world biodiesel industry, their
MPOC Malaysian Palm Oil Council advantage and disadvantage of using palm oil as the main feed-
MYR Malaysia Ringgits stock for production, political and economic barriers which needs
NGO Non Government Organization to be overcome, competition between the major producers and
OSHA Occupational Safety and Health Administration technological aspects. This study covers the biodiesel technology
POIC Palm Oil Industrial Cluster that is currently being used in Malaysia to produce pure biodiesel
PRIME Program for Rebuilding and Improving Malaysia’s that meets international criteria, suggestions for improvements
Export in implementing better method and technologies to be used in
RSPO Roundtable on Sustainable Palm Oil Indonesia and Malaysia. Overall, this paper analyzes the past, cur-
UK United Kingdom rent and future trend of the palm oil biodiesel industry in Malaysia
UNFCC United Natons Framework Convention on Climate among world biodiesel industry.
Change
US United States 2.1. Background
USA United States of America
2.1.1. Raw stock for biodiesel
List of symbols There are several sources which are used as feedstock for
CO2 carbon dioxide biodiesel production such as rapeseed and soybean oil. However,
ml milliliter compared with other vegetable oil, palm oil has far better advan-
NOx nitrogen oxide tage and potential as feedstock for biodiesel production. Palm
oil is a perennial crop, unlike soybean and rapeseed. Perennial
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949 1939

Elaeis Guineensis Mesocarp

Refining: Cooking,
Mashing, Pressing
Crack and remove the shell

Seeds are separated

Fig. 1. Yield comparison of major oilseeds [6].

Kernel processed to palm kernel
oil and palm kernel cake
crop means the production of oil is continuous and uninterrupted,
though annual production has its seasonal peak and down cycle
[4]. Palm plantation has the highest oil yield in terms of oil produc-
tion per hectare of plantation. Palm oil yield from palm plantation
is a factor of ten higher than oil yields from soybeans, sunflower
or rapeseeds [5]. Palm oil production has higher production yield Crude Palm Oil
compared to soybean, sunflower seed and rapeseed as shown in
Fig. 1. Palm oil imports from Malaysia into EU are equivalent to
having 4.9 million ha of soybeans or 1.7 million ha of rapeseed [5]. Fig. 2. Palm plant to crude palm oil process.

2.1.2. Palm oil as raw stock

Palm oil is the most prospective biodiesel feedstock compared to Palm Oil
other oilseeds. As discussed earlier, palm oil has higher production
yield, low fertilizer, water and pesticide needed for the plantation.
Palm oil production takes less sunlight in terms of energy balance to
produce a unit of oil as it produces more oil per hectare. However,
in terms of the basis of palm oil yield per man in a day, it is not Crude Oil
as competitive as other oilseeds because of the difficulty of labor
plantation management and harvesting of the fruit. Comparatively
in Indonesia, it is less an issue because the extensive labor market
Refined Palm Oil
readily available in Indonesia compared to Malaysia [7].
Among the vegetable oils in the world market today, crude palm
oil and refined palm oil tops the list. Palm oil is known for its nutri-
ent fact that makes it suitable as vegetable oil used for daily cooking.
Palm fruit is known as Elaeis Guineensis. The inner wall of the fruit
called mesocarp which is fleshy is required for processing in order Biodiesel Fuel / Blended Petroleum Fuel
to obtain the palm oil. From Fig. 2, it is shown the step by step
process of palm oil transformed into crude palm oil which is then Fig. 3. Palm oil to biodiesel process.
processed into other products including biodiesel. Mesocarp is pro-
cessed into CPO through refining and kernel processing in steps
shown in Fig. 2. Amount of CPO obtained from palm is dependent used as palm oil biodiesel. Palm oil is processed into CPO, then into
on palm tree variety and also the age of the tree. From a palm bunch, refined oil before being processed into palm oil biodiesel as shown
approximately 25–28% of CPO can be obtained [7]. in Fig. 3.
Palm oil biodiesel can be either be processed into methyl ester
2.1.3. Palm oil biodiesel or blended in certain proportion with petroleum diesel which is
The palm oil harvested and produced from palm trees is referred known as Envo Diesel. This paper will discuss in detail the Palm Oil
to as CPO. The crude palm oil is the transported to palm oil refinery Biodiesel.
to be refined. The factory output is the refined palm oil which can be
converted into methyl ester and directly used as biodiesel. Another 3. Analysis
method is by blending refined palm oil with petroleum diesel to
make diesel fuel. Blending certain percentage of petroleum diesel 3.1. Perspective on Indonesian versus Malaysian palm oil
with palm diesel is called Envo Diesel. Methyl ester from palm oil
has low engine emissions, high oxidation stability apart from the A significant change took place in palm oil industry in the
high nitrogen oxide emission which is higher [8]. year 2006 when Indonesia beat Malaysia in the competition of
As shown in Fig. 3, CPO can be processed into refined palm world’s leading palm oil producer as shown in Fig. 4. In the current
oil which can then be used for multiple applications including be world palm oil production, Malaysia is second largest producer [4].
1940 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
Fig. 4. Malaysia and Indonesia palm oil production.
Looking at the Indonesia’s palm oil production rate compared to
Malaysia in the below figure, there are high chances of Indonesia
surpassing Malaysia and continue to be leading producer for the
foreseeable future.
In 2007, Malaysia exported 16.5 million tonnes of palm oil,
which is a significant increase of 11% compared past years. This
is clearly reflected in the next year; 2008 as the country increased
its total palm oil plantation area by 4.3% to fulfill the ever increasing
palm oil demand. By year 2008, palm oil plantation area in Malaysia
totals up to 4.48 million ha [9]. Compared to growth of 2% in Penin-
sula Malaysia, the expansion for palm oil plantation is majorly
focused on Sabah and Sarawak with growth of approximately 7%. It
is estimated that about 30% of total palm plantation area in Malaysia
is situated in Sabah with area amounting to 1.33 million ha [10].
3.2. Palm oil biodiesel versus other feedstock
In the year 2008, the government of Malaysia was considering
other feedstock as potential biodiesel rawstock for future prospects.
Jatropha was identified as high potential feedstock which had
suitable criteria as palm oil replacement for biodiesel rawstock. Jat-
ropha as biodiesel rawstock is still in research and development by
many countries around the world. It is expected that it will take
some time before hitting the commercial fuel market [8].
The government looked at other potential feedstock for
biodiesel production due to the competition on the use of the palm
oil either as food sources as fuel. Around the world biodiesel pro-
ducers are now focused in using primarily raw materials which is
non-food based for any type of biofuel production to avoid com-
petition of rawstock with food industry. Currently, almost all the
biodiesel projects in Malaysia have been focusing on palm oil as the
raw material.
During the surface of the reports indicating that EU might ban
biofuel derived from crops grown on some sensitive ecosystems,
Malaysian palm oil industry feared the worst. Malaysia; as the
second largest palm oil producer in the world after Indonesia is
the potentially largest palm oil biodiesel producer. Countries like
Brazil and the US; biodiesel producer from ethanol are eyeing the
EU market giving heavy competition to palm oil biodiesel produc-
ers. Biodiesel market are having large market competition after
the 27 nation bloc suggested for biofuel to be used at least 10%
in transportation by year 2020 [5].
Jatropha is a promising biodiesel feedstock for future. The gov-
ernment publicity on Jatropha as next potential biodiesel feedstock
at the Sabah Development Corridor launch in the year 2008 gave
competition to existing palm oil biodiesel. However, the use of Jat-
ropha as biodiesel feedstock requires more research to develop its
properties to acceptable level for mass commercial usage [8]. And
currently, the research is still ongoing.
3.3. Palm oil and Malaysia
The palm oil industry is an important pillar of Malaysia econ-
omy. The palm oil sector plays an important role in ensuring a
continuous flow of foreign investments and earnings through the
export of palm oil and its value added products to the global mar-
ket. In the year 2008, palm oil industry contributed approximately
MYR 65.2 billion in the Malaysia exports which is an evident of
palm oil industry significance to the Malaysian economy [9]. The
contribution of Malaysian palm oil to the world’s oils and fats mar-
ket was very significant in the year 2008. Malaysia produced 11.1%
palm oil; approximately 17.73 million tonnes from global palm oil
production which in total of 160 million tonnes oil and fats. The
sustainable production of palm oil in Malaysia is overseen by the
Malaysian Palm Oil Association. Malaysia palm oil production is
estimated 18.3 million tonnes in 2009 compared to 17.73 million
tonnes in year 2008 [5].
For last 20 years, there has been rapid increase in global demand
for palm oil, especially in food industry, consumer products and
recently, for biodiesel rawstock. India and China are countries
with growing market that inadvertently increases the demand for
vegetable oil. In recent times, world is heavily concerned of the
overall energy management and has changed its focus to sus-
tainable energy in which palm oil growth plays a vital role [11].
Foreign investors including European countries have invested mil-
lions of dollars in the local palm oil industry to support palm oil
biodiesel. European countries are major importer of palm oil; as
a step of promoting the sustainable energy in Europe, the gov-
ernment gave subsidies for biodiesel which in turn increased the
demand for palm oil significantly. In order to satisfy the demand,
palm oil biodiesel producers started to convert rainforest in Asia
into palm oil plantation. After clearing the forest and draining
the peat swamps, palm plantations are further expanded and
developed.
As of the year 2009, the Malaysia palm oil had contributed
approximately 26% in the total Malaysian oils and fats export. The
palm oil consumption in about 150 countries worldwide is sup-
plied by various palm oil producers; among them, Malaysia supplies
about 46% of total oil consumption [9].
This was achieved by using 4.5 million ha of land which is
comparatively less than 1.9% of total area in the world used for
oilseeds plantation. The total area in the world used for oilseeds
is 233 million ha. Malaysia is currently focused on increasing the
productivity; steps are taken to increase the oil yields by intro-
ducing genome sequencing method. The aim is to increase the
average oil yield from four tonnes per hectare to eight tonnes per
hectare. Genome sequencing is a laboratory process that deter-
mines the complete DNA sequence of an organism [9]. Using this
technique, scientific process and procedures can be done to the
palm oil plant to produce more outputs. Using this technique,
Malaysia is hoping to continue as the major palm oil producer
meeting all the global demand without requiring new plantation
areas.
The EU are focusing on sustainable energy thus passed a leg-
islation so that all member in EU bloc ship and use palm oil
from a company legally approved to produce palm oil that can be
used for fuel application in sustainable method. Restrictive poli-
cies implemented by EU created differences in the marketing of
vegetables and grains ‘oil that caused the decrease of the palm
oil prices compared to soybean and rapeseed oil’. In November
2008, world’s largest palm oil producers; Malaysia and Indonesia
jointly agreed and took steps to reduce the palm oil produc-
tion after huge price fall as an impact from supply exceeding the
demand. Among steps taken is replanting old palm plantation,
which estimated will reduce about 800,000 tonnes yearly palm oil
production.
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
Fig. 5. World production of major oil [12].
In the year of 2009, during the global economic slowdown,
Malaysia palm oil industry was facing issue of oversupply. To
reduce the oversupply of palm oil and at the same time to support
the palm oil prices in the market, Malaysia initiated the Palm Oil
Replanting Incentive Scheme worth of MYR 200 million to reduce
the nation’s high palm oil stock to ensure the stability of palm oil
prices. The objective of this scheme is to chop 200,000 ha of palm
oil trees aged 25 years and above. For short time period, this is
expected to reduce 700,000 tonnes of palm oil supply per year. The
government had approved 63,000 ha under this scheme which was
closed in June 2009 [9].
Strategies like replanting palm oil tree schemes and impose of
the mandate for the palm oil biodiesel use reduces the CPO inven-
tory and helped to sustain its price at MYR 1400 per tonne in the
year 2009 [11]. It is important to reduce the oversupply and main-
tain the CPO price above RM 1400 tonnes as the producers will not
be profitable in the trade below this price. In March 2008, the CPO
prices soared up till MYR 4180 but the price plummeted to low MYR
1403 per tonne in November 2008 [9]. The inventory for palm oil
rose to significantly high amount of 2.3 million in November 2008
but reduced to slightly more than 1.8 million tonnes in January
2009 as shown in the Fig. 5. Palm oil is the major oil produced in
the world; this indirectly helps to lower price of palm oil biodiesel
but not significantly.
The CPO price range between MYR 1400 and MYR 1900 per
tonne in year 2009 was sufficient to sustain the export earnings.
However, the earnings from palm oil exports in the year 2009
dropped compared to MYR 65.8 billion in the year 2008 because
of the price fall and lower exports.
Towards the end of year 2008, MPOC launched PRIME program.
This program is an effort by the MPOC to promote palm oil exports
in Malaysia. One of the strategies is to introduce new market per-
spectives to exporters and encourage them to produce new product
innovations to achieve greater business borders [13].
Fig. 6. Equation of palm oil into biodiesel.
1941
3.4. Biodiesel production technology
Before analyzing the infrastructure and technology required in
converting Palm oil into biodiesel, the production process must
be understood first. There are three general ways to convert
vegetable oils and fats into biodiesel; base catalyzed transesteri-
fication of the oil, direct acid catalyzed transesterification of the
oil or conversion of the oil to its fatty acid then to biodiesel
[14]. Biodiesel producers opt for the option 1 due to low tem-
perature and pressure in the process. This method also has high
conversion ratio of almost 98% with minimal side effects and
reaction time. This method is advantageous as no intermediate
compound is required and the oil can directly be converted to
biodiesel [15]. The chemical reaction for base catalyzed palm oil
biodiesel production is shown in the chemical equation shown in
Fig. 6.
Chemical Equation above shows transformation of palm oil into
biodiesel which also gives another output; glycerin. The conclu-
sion from the above chemical equation is that when fat or palm
oil reacted with short chain alcohol; methanol or ethanol which is
shown as ROH in figure above, glycerin and biodiesel obtained as
output. For example, when one hundred kilogram of oils reacted
with ten kilogram of alcohol, ten kilogram of glycerin and one hun-
dred kilogram of biodiesel will be obtained as result from the above
equation. The alcohol is used to quicken the conversion process. R ,
R and R shown in the figure above is the representation of the
fatty acid chains of the palmitic oil or fat [14].
The biodiesel production process has following steps as shown
in the flowchart in Fig. 7:
i. The catalyst mixed with alcohol. The catalyst usually dissolved
in the alcohol using a standard mixing machine.
ii. The mix is then put into a closed reaction vessel and the palm
oil or fat is added. A closed system is done in the process to
prevent the loss of alcohol to the atmosphere.
iii. The mix is kept at the temperature above the boiling point
of alcohol at about 70 ◦ C so that the reaction takes place. The
reaction time varies from 1 to 8 h and excess alcohol usually
used to ensure complete conversion of palm oil into methyl
esters.
iv. Once the reaction have completed, there will be two outputs
which are glycerin and biodiesel.
v. Glycerin and biodiesel output will not be in their purest form.
Each will be in mixture form where it is mixed with excess
alcohol from previous steps. This is where the neutralization
step takes place. The glycerin has more density compared to
biodiesel and the two outputs can be separated using gravity
by drawing off the bottom of the settling vessel.
1942 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
Catalyst Methanol Palm Oils, Fats
Catalyst Transesterification
Mixing
Purification Crude Biodiesel
Methanol
Recovery
Quality Control
Methyl Ester
Fig. 7. Biodiesel production process [15].
vi. After the glycerin and biodiesel have been separated, the
excess alcohol in each of them will be removed and the mix
will be neutralized. The alcohol will be recovered in methanol
recovery step using distillation equipment and it will be re-
used.
vii. After separation, the biodiesel is further distilled. This is done
by washing the biodiesel with warm water in order to remove
any type of foreign particles including the catalyst or soaps.
Then, biodiesel is dried and stored. The distillation process
can be avoided if the output obtained has similar charac-
teristics like petrodiesel in terms of viscosity and yellow
liquid color. Biodiesel can be made colorless in one more
step of distillation by removing the color properties from the
liquid.
viii. For usage as an automotive fuel, the end product of biodiesel
must be analyzed using international standard analytical
equipment to ensure it meets specifications. For global
biodiesel marketing, it is important for a biodiesel manu-
facturer to register the biodiesel product with the United
Stated Environmental Protection Agency under 40 CFR Part 79
[15].
Neutralizing Acid
Neutralization
Phase Separation
Re-Neutralization
Methanol
Recovery
Crude Glycerin
Glycerin
Purification
Pharmaceutical
Glycerin
3.5. Pure palm oil biodiesel characteristics
Biodiesel is a biodegradable and non-toxic fuel; free from sul-
fur. It is produced by transesterification reaction of vegetable oil
with low molecular weight alcohol, such as ethanol or methanol.
In the industry, biodiesel is produced using homogeneous reaction
[16].
Important characteristic of oil to be used as fuel is the solubility
of the oil in petroleum. Another way is to blend the oil or fat with the
ethanol. Most of the vegetable oils are a mixture of different esters
such as oleic acid (main portion from olive oil), ricinoeleic (main
portion from castor oil), linoleic acid (main portion from linseed
oil), palmitic acid (main portion from the palm oil kernel) and many
other oils. Refined CPO makes alternative fuel that is useable in
unmodified diesel engines.
As discussed in earlier topics, biodiesel is an alternative fuel
that has great potential to replace petroleum fuel. Moreover, it is a
renewable energy source which is biodegradable and non-toxic. In
recent times, biodiesel issues have drawn lot of interest as increase
of depletion of petroleum source in near future is predicted. Cur-
rently, biodiesel market is booming in Europe and other countries
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
like US and Asia have started introducing biodiesel for commercial
market as an alternative fuel.
Like discussed earlier, biodiesel can be made from variety of
feedstock like soybean, canola, corn, vegetable oil like sunflower
and animal fats or waste cooking oils. Fuel made from soybean usu-
ally is either used in its original form or blended with petroleum
fuel. Blended form of soy based fuel improves lubricity of pure
petrodiesel fuel.
Research was done in Bangkok where palm biodiesel was used
for a motorcycle, the emission and engine performance was tested.
Research found there was no significant difference in emissions
between the biodegradable and the fossil fuel. Comparison of
the engine performance and fuel consumption for both lubricants
showed no significant difference either [17]. However, since palm
biodiesel is a renewable source, it is a lower carbon source and that
it offers superior tribological properties (wear scar, viscosity index,
etc.) [17]. This is a promising alternative to fossil fuels.
Biodiesel plays an important role in country’s economy.
Biodiesel has the ability to substitute petroleum fuel and dominate
the world’s transport system. As it is renewable and manufactured
using latest technology, biodiesel has bright future in the mar-
ket replacing old fossil fuels infrastructure and pipes. There has
been increasing number of fuel stations selling biodiesel around
the world. However, percentage of biodiesel sold versus petroleum
diesel is comparatively small. OSHA has categorized biodiesel as
non-combustible liquid which burns when it is heated to high tem-
perature. However, when burned, biodiesel fuel releases less toxic
and other gases to atmosphere [18].
4. Discussion
4.1. Past and current market trend of palm oil biodiesel
The palm oil biodiesel production in Malaysia is overwhelm-
ing. There are initial researches conducted for biodiesel production
from various types of sources including waste materials. However,
research and development for biodiesel production from waste
materials are in early stage and far from being the next energy
solution for current and present energy need.
Till the year 2008, Malaysia had about 91% of palm oil biodiesel
projects approved to government and non-government compa-
nies. In total, these projects had approximately 10.2 million tonnes
production capacity per year [9]. Currently, 12 biodiesel plants
are fully operational in Malaysia with capability of producing one
million tonnes biodiesel per year [9]. There are two other plant
having production capacity of 160,000 tonnes a year will start its
operation soon as their operational setup has been completed.
According to MPOB, the existing biodiesel plants produced approx-
imately 196,363 tonnes between August 2006 and March 2008
while approximately 154,791 tonnes of biodiesel worth of MYR 411
million were exported to countries like US, Europe, Singapore and
Australia.
Recently, price of CPO have increased rapidly which impacts the
production cost at biodiesel plants. As biodiesel plants in Malaysia
are heavily dependent on palm oil as rawstock, increased CPO price
has increased the biodiesel production cost. The average cost of
CPO in the year 2006 was MYR 1502.50 per tonne. This price has
increased significantly within two years; in the year 2007, the price
was MYR 2516.50 per tonne while in the early of 2008, the price
was MYR 3433.50 per tonne. This has caused the cost to exceed the
profit margin.
In March 2008, production cost for palm oil biodiesel was MYR
4330 per tonne; whereas the market price for the palm oil biodiesel
was MYR 3632 per tonne. The CPO prices are increasing rapidly as
shown in Fig. 8.
1943
Fig. 8. Rising price of CPO [19].
Continuously rising biodiesel cost have prompted several palm
oil biodiesel producers to stop their biodiesel production due to
high production cost has left an negative impact on their profit
margin. This step in another way have stumped the development
and growth of the biodiesel industry.
Till to date, the Malaysian government has given more than 90
biodiesel licences to various organization and companies which
has production capacity of 10 million tonnes per year. However,
it is reported in the Reuters’ survey that on seven biodiesel plants
are currently running and most of them are operating well below
the capacity. The survey also showed that there were 14 projects
delayed; where their total biodiesel production capacity exceeds
two million tonnes.
The main reason for the delay is the high CPO prices, which
encourages the palm oil industry to produce palm oil for more
profitable business or industries instead of the biodiesel which has
higher production cost compared to profit. The high cost of invest-
ment to setup the biodiesel facilities does not encourage the palm
oil industry. It is said that for the priceof biodiesel at MYR 4000
per tonne, even conglomerates in Malaysia such as Sime Darby is
not keen to plunge into the biodiesel industry [9]. Currently, the
company is focusing on the palm oil downstream activities such as
bulking and refinery process to be exported [9].
A report by Frost and Sullivan regarding biodiesel showed that
the demand for biodiesel has increased in the Asia region over the
past few years. For Malaysia, the demand for palm oil biodiesel
would increase from current 110,000 tonnes to 563,000 tonnes in
the year 2013. Asia region has a booming market for biodiesel as
there are several strong drivers of growth; increased supply and
increased demand. Many countries in the Asia region developed
domestic markets and at the same time,producers like Malaysia
and Indonesia targeted export markets. In several countries in the
Asia region, the government introduced mandates for biofuels to
develop the domestic market.
On March 22, 2006, Malaysia Prime Minister Datuk Seri Abdullah
Ahmad Badawi launched biodiesel called Envo Diesel. This type of
biodiesel blends 5% of proccessed palm oil with 95% petrodiesel. In
EU, there are B5 type of biodiesel that blends 5% methyl ester with
95% petrodesel. The manufacturers for diesel engine prefer the use
of palm oil methyl ester blends as diesel engines are designed to
handle 5% methyl ester meeting the EN14214 biodiesel standard
[9].
In the year 2009, the Malaysian government reassured that even
though high CPO cost, there are no plans to remove the five per-
cent biodiesel mandate introduced in 2006 showing their continuos
towards palm oil biodiesel industry. The government encourages
the use of biodiesel in the country, although it is not have been
mandatory use [20]. Malaysian government are encouraging the
use of palm oil biodiesel as they are obliging to Kyoto Protocol. The
use of palm oil biodiesel have not been made mandatory due to the
fact that at the present,the raw material price is very high.
Kyoto Protocol is a protocol of the UNFCC, an international
environmental organization. This organization is trying to achieve
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environmental stabilisation. Their main aim is to equalize and neu-
tralize the concentrations of atmospheric greenhouse gas to certain
level that can help to avoid degradation caused by human that
would disturb the ecosystem and the climate system. In Octo-
ber 2008, Malaysia put into practice the mandate of five percent
biodiesel will be used in vehicles starting with the government
vehicles in the year 2009 and planning to implement extensively
to industrial and transportation sector in the year 2010.
By early 2010, Malaysian government has estimated that nation-
wide palm oil consumption will be about 500,000 tonnes. This
covers three percent of national CPO production. This estimation
is the results expected when Malaysia implements the blended
biodiesel program full fledged starting with supplying B5 diesel
throughout the Malaysia using 36 depots [20]. Government agen-
cies have started using blended biodiesel for official cars; thus
promoting biodiesel for transportation. In future, industrial and
transportation industry will be encouraged to use the blended
biodiesel. The Malaysian government is working with nation’s
biggest petroleum company; Petronas to provide B5 biodiesel to
the other agencies. In February 2009, Kuala Lumpur City Council
and the Armed Forces in the country took part in the biodiesel pro-
gram which proves the government agencies commitment towards
growth of palm oil biodiesel industry [20].
As a step forward, biodiesel producers and fuel companies are
currently discussing the important aspects and critical issues to
the implementation such as logistics and finance. As of the year
2009, the main challenges facing the biodiesel industry in Malaysia
are the exports of subsidised US biodiesel to EU that is distrub-
ing the prices and trade, the EU energy directive and overall global
economic slowdown.The global economic and financial crisis have
caused a significant drop in the CPO prices, causing development
of the biodiesel industry to slow down or to be exact halt new
investments.
Overall, Malaysia has invested significantly in biodiesel indus-
try achieving production capacity of 1.67 million till date readily
available to satisfy the local and world demand. Malaysia together
with other palm biodiesel producer; Indonesia is concerned over
the idea of EU countries trying to apply taxes on any alternative fuel
made from vegetable oils or grains. This proposed idea will bring
negative impact to Asian biodiesel producer who depend heavily
on vegetable rawstock for biodiesel production. EU have restricted
throughout its 27 member bloc countries to import and use alterna-
tive fuel supplied by companies that is certified legally to produce
palm oil biodiesel with sustainability.
In the year 2009, palm oil had 50% less value compared to year
2008 due to global recession reduced the consumption despite
large output and inventory while falling CPO prices caused decreas-
ing demand for biodesels.
4.1.1. Biodiesel projects in Malaysia
In year 2005, Malaysian government introduced biodiesel for
transportation use as part of sustainable energy development
through diversification of energy sources [21]. Biodiesel is receiving
lack of interest from transportation and automobile industry due to
unclear policy and directive from the government. Instable palm oil
price also hinders the development of biodiesel industry. However,
increasing fossil fuel price has revived the interest on biodiesel [21].
Thus, Malaysia government has set their focus to top the biodiesel
market by becoming leading palm oil biodiesel producer.
A step that Malaysian government has taken to lift its status
in the global palm oil industry and indirectly the palm oil biodiesel
industry is by establishing POIC in the year 2005 [9] which is located
at eastern Sabah; a place called Lahad Datu. It is located strategi-
cally at the palm oil belt of Sabah; a state in Malaysia. This is the
first industrial park dedicated fully for palm oil and its business in
Malaysia. It is a dream project designed to upgrade Malaysian palm
oil industry to the next level in the global competition. The location
is neighboring Indonesia’s Kalimantan which houses many major
palm oil plantations. This place can be considered as an important
international frontline for palm oil industry. The initial 1150 acres
of the first phase of the project of the 5000 acre gathered overall
good responses from biodiesel investors.
Palm oil has been the founding base of the national biofuel pol-
icy in Malaysia. The fluctuating palm oil prices have slowed the
nationwide execution of five percent palm biodiesel. During the
period of year 2006 and 2007, as many as 92 biodiesel projects
have been approved but due to challenges and struggles, only 14
biodiesel plants were managed to be built. Among them, only eight
plants were in operation in year 2008 [22]. High palm oil prices
have stopped other projects on its track. Other plants have stopped
their operation or shut down due to heavy loss and unbearable
costs [22]. The failure to fully implement Envo Diesel program
further dampens progress of the biodiesel industry. These chal-
lenges and its negative impacts resulted from the overestimation
of projects’ output [22]. Government set goals which were lacking
in basic technology and practicalities, was merely based on unreal-
istic assumptions [22]. In the national biofuel policy, government’s
choice to focus only on one vegetable oil; palm oil shows lack of
foresight and planning [22].
Malaysia and other palm oil biodiesel producers in Southeast
Asia are focused on palm oil biodiesel export business compared to
usage of palm oil biodiesel domestically within their own nation.
Comparatively, environmental effects are given less prioritization.
All these countries are paying high subsidies for imported fossil fuel.
In order to commercialize their own biodiesel, they are required
to pay higher subsidies as the biodiesel prices are comparatively
higher than the petroleum fuel. Malaysian government have dis-
continued the Envo Diesel project (the combination of 5% methyl
ester with 95% diesel for mass commercial usage) as it has failed
to market it at 2008 as planned in “The National Biofuel Policy”
launched in year 2006 [8].
4.1.2. Palm oil biodiesel and international standard
In order to achieve a successful biodiesel production operation
in terms of producing compatible automotive fuel in unmodi-
fied diesel engines, it is important to have complete reaction of
the mixture. Like previously mentioned, it is essential to remove
unnecessary glycerin, excess alcohol and other unwanted residuals
from the output of reaction to obtain pure biodiesel. Before being
used as an automotive fuel, the biodiesel must comply with the
international standard, ASTM D 6751 [20]. This standard sets the
parameters that the pure biodiesel must meet before being used
commercially in an automotive.
The importance of meeting the global standard of biodiesel is
strengthened by the fact that US; one of major biodiesel importers
and user has formed National Biodiesel Accreditation Commission.
This commission has an accreditation program to certify eligibil-
ity of biodiesel companies. This accreditation is to give assurance
and confidence to consumer that the accreditation holder has ful-
filled all condition and terms and therefore sells pure biodiesel that
meets the ASTM specifications. This accreditation program is being
carried out step by step and when the program have been fully
implemented, biodiesel marketer all over the world will be recom-
mended to become certified and all biodiesel consumers make their
purchases from certified marketers.
4.1.3. Biodiesel development worldwide
The increase of palm oil prices has dampened the fledging
biodiesel industry in Malaysia. The government has put on hold the
proposed mandatory blend of five percent of palm olein in diesel.
However, foreign companies are still investing in this sector consid-
ering its long term prospects. The domestic consumption of palm
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
oil biodiesel in Malaysia is considerably low, so most of all the pro-
duction will be exported to main importers; EU and the US. Current
situation for palm oil as the main raw stock for biodiesel production
is not looking so promising with escalating palm oil prices. Alterna-
tive raw material; Jatropha is likely to take over the place of palm
oil in the case of continuous palm oil price increase.
The rocketing of CPO prices and government subsidy for fossil
fuel in the domestic market has prompted some local and foreign
investors to temporarily stop their biodiesel plant constructions
plans [20]. A couple of Malaysian plants are also suspending pro-
duction to avoid incurring losses. Also, the Malaysian government
also postponed the proposed mandatory blend of 5% of palm olein
in domestic market which was proposed in National Biofuel Policy
in 2005.
Foreign countries like EU and US are still welcoming the
petroleum products and other biofuel products, but recent con-
cerns expressed by EU regarding environmental effects caused by
palm oil plantation in long terms may lead to banning of palm oil
biodiesel [20]. This raised fears among palm oil biodiesel produc-
ers that the product will be banned from entering into EU market
which will cause great loss to the producers considering the fact
that EU is one of the major biodiesel importers.
However, the debates over the positive and negative impacts
of the palm oil biodiesel industries are ongoing everywhere.
Biodiesels are often linked with the increase of food prices. In the
year 2008, Dr Patrick Dixon, a leading business consultant also
known as futurist said that the World Bank has reported about 15%
of food price hike is related to energy and fertilizer price increase
while about 75% is linked to demand from biodiesel industry.
According to a letter by World Bank President Robert to NGOs,
starting from year 2009, the World Bank has temporarily deferred
all IFC finance to support palm oil industry. This will be reviewed
in time to ensure that all their finances were not misused unin-
tentionally causing social or environmental damage. This policy
was drawn as aftermath from a procedural violation by Wilmar
Group, a plantation developer. An independent environment group
conducted audit and found the developer; who was funded by
IFC violating procedures and causing damage to environmental
and social standard. This inadvertently has brought World Bank
under heavy criticism for supporting palm oil industry which brings
deforestation in Indonesia in large scale, which causes greenhouse
gas emissions, endangering rare and charismatic species of wildlife,
including the orang utan, and displacing forest communities. In
a letter to Marcus Colchester, Director of the Peoples Program,
Zoellick said the IFC has suspended all new investments in palm
oil projects and ordered a review of existing projects until a new
strategy is set to ensure the lending is used for good cause effects
[23].
In the year 2008, Germany has reduced their subsidies on bio-
fuel. This results in drop in business for biodiesel industry in
Malaysia causing biodiesel producers to stop their operations. The
impact was also seen in Germany where many fuel stations were
forced to suspend their operation due to unbearable cost. But,
in January 2009, the situation was reversed where Malaysia and
Indonesia saw increased palm biodiesel production. This was due
to palm oil price dropped 75% compared to January 2008 [8].
Indonesian government launched their national policy on bio-
fuel in the year 2006. The main aim of the policy was to replace
ten percent of transport fuel with alternative fuel by year 2010.
This policy was mainly supported by national oil company PER-
TAMINA where the company started selling B5 biodiesel blends
commercially. However, the company was not able support the
policy when it incurred heavy financial losses due to high feed-
stock price of biodiesel. In order to balance losses, the ratio of the
blend was reduced to one percent. This overall effect has influenced
Indonesian government to reevaluate and adjust their target goal
1945
to an achievable target of 2.5% diesel replacement by biodiesel and
3% gasoline replaced by ethanol in 2010 [8].
Compared to other countries, Thailand did quite well in achiev-
ing their target of replacing ten percent diesel by biodiesel by year
2012.By year 2007, there were already approximately 800 retail
fuel stations selling B5 blends. Indonesia and Thailand makes a sta-
ble progress in biodiesel industry as they have multiple feedstocks
like sugarcane, cassava as feedstock for biodiesel. In the other hand,
Malaysia is focused on palm diesel, causing it to be dependent on
petroleum and palm oil price. Also, palm diesel is facing heavy com-
petition from food industry for palm oil to be used as vegetable
[8].
4.1.4. Global Competition for palm oil production
Malaysia is one of the leading producers of palm oil biodiesel
with extensive reserve of raw palm. On analyzing the track records
of biodiesel production by Malaysia one can comment that Malaysia
is having a competitive edge over the other palm oil based bio diesel
producers. But Malaysia is not the only producers of biodiesel coun-
tries like Indonesia, Columbia, Benin, Kenya and Ghana has began
to explore the resources available in their country to sustain the
palm oil biodiesel production.
Indonesian producers have increased the production of palm oil
to supply to the global demand spurred by biodiesel, as supported
by the government to become one of the top producers of palm oil.
Statistics indicate that the production increased by approximately
400% between the year 1994 to year 2004. In the year 2007, it has
been a golden landmark to Indonesia as they outplayed all the other
palm oil producers including Malaysia and became the top palm oil
producer.
Colombia has grown to be a largest palm oil producer for US
with 35% of its product is exported as biofuel. In year 2006, it was
reported that cultivation of oil palm was expanding with a few
million hectares of area. In addition to Columbia areas which are
suitable for cultivation of palm to grow with plantations, the gov-
ernment has identified the opportunity for making use of the wet
lands of western Africa and south Benin. The Benin government
has identified the economic benefit of producing palm oil based
biodiesel in spite of the fact that it will be competing against the
domestic food production.
Ghana has a wide variety of palm based species which are mar-
keted only to the local and neighboring counties but because of the
low financial position and economic backwardness, Ghana is not
able to effectively become a top producer in the export of palm oil.
Based on statistics, it is very clear that the immediate competitor
to Malaysia in palm oil production is going to be Indonesia as it also
has extensive amount of palm cultivation area. The other producers
are still exploring all the possible options to increase the production
of palm oil and there is a strong possibility that the other produc-
ers can develop the production drastically. Hence, it is important
for Malaysian government to sustain the palm oil based biodiesel
development.
4.2. Challenges and steps taken by Malaysian government to
sustain palm oil biodiesel development
Malaysia being a top producer of palm oil based biodiesel has a
significant advantage in biodiesel production. In order to sustain
and remain in the same position among the global competition
there are several hindrance factors which need to be addressed at
the right timing. The major factors are:
4.2.1. Cost standard of palm oil biodiesel
Biodiesel production was earlier based on petroleum and later
it has been identified as an opportunity to produce the same from
palm oil. Hence; in order to promote the palm oil based biodiesel,
1946 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949

it is a necessity to keep the cost of biodiesel from palm oil to be as

low as possible on comparison with the petroleum based fuel. On
comparing the Commodity market prices of fossil fuels and veg-
etable oils it is very evident that the commodity price is not in
favor of later one. Since the base oil is the main ingredient which is
required for the production of biodiesel, it is not going to be easy
to produce palm oil based biodiesel in a market with expensive
pricing to replace the petroleum based fuel.
Major cost of production in biodiesel market involves approxi-
mately about 80% of raw material cost and the remaining 20% for
the other manufacturing and production costs. Due to this reason
of oil prices it is the profitability in the palm oil based fuel market Fig. 9. Malaysian biodiesel exports [9].

is estimated to be very low.

As of 24 Mar 2009, palm-based biodiesel was sold at about
RM2.80 per liter compared with about RM1.70 per liter for diesel. In
order to ensure that Malaysia sustain the alternative source of palm
based biodiesel it is important that the government attracts the oil
companies and other private companies to produce and market the
palm based biodiesel. For this Malaysian government has already
implemented a solution in 2009, in order to stabilize the local palm
oil industry by allocating MPOB Palm oil stabilization fund to sup-
port the biodiesel prices. Even though the CPO prices hits the profit
in this sector to a greater extent Malaysia and Indonesia has made a
joint collaboration of allocating 40% of the total palm oil production
in order to combine with the existing petroleum diesel in order to
further promote the palm oil biodiesel.

4.2.2. Export barrier

In first half of year 2009 alone, Malaysia exports almost
150,000 tonnes of palm oil biodiesel to other countries as shown
in the Fig. 9. Malaysia exports palm oil biodiesel to several coun-
tries like EU, US, Singapore, Taiwan and other countries as shown
in the Fig. 10. EU is considered to be one of the largest consumers
of biodiesel as shown in the Table 1 [24]. EU has increasing demand
for biodiesel; therefore it is important for Malaysia to capture the
EU market to become top palm oil biodiesel exporter.
A renewable energy directive has been targeted by Europe fore-
seeing the achievement in the year 2020. The targets which are
foreseen are given below.
Fig. 10. Malaysian biodiesel export destinations [9].
i) 20% of energy consumed across the EU should be from renew-
able energy source.
ii) 15% of energy across UK should be from renewable source.
iii) 10% of energy used in transport should be from renewable
source.
iv) Minimum reduction in greenhouse gas emission from road
transport should be reduced to 6%.

Table 1
Consumption of biodiesel in the European Union [21].

Country Year 2005 (tonnes) Year 2006 (tonnes) Year 2007 (tonnes) Year 2008 (tonnes)

Germany 209 342 393 335

France 46.6 80 164 273
United Kingdom 3.4 18 37 94
Italy 23.3 20 18 75
Spain 3.1 7.32 35 70
Poland 1.8 5.71 3.38 46
Netherlands 0 2 30 27
Austria 10.7 45 26 25
Portugal 0 9.51 18 18
Sweden 1.1 6.08 14 18
Belgium 0 0.12 12 12
Hungary 0 0.05 0.27 10.96
Czech Republic 0.4 2.48 3.8 10.25
Greece 0.4 6.28 10.99 10.23
Romania 0 0.37 5.41 8.14
Slovenia 0.7 0.56 10.42 7.18
Lithuania 1 1.88 5.69 6.19
Luxembourg 0.1 0.07 5.63 5.61
Ireland 0.1 0.09 2.34 5.41
Slovenia 1.3 1.73 1.76 3.01
Cyprus 0 0 0.1 1.92
Finland 0 0 0.01 1.55
Estonia 0 0.08 0.07 0.37
Latvia 0.3 0.2 0.23 0.26
Malta 0.1 0.12 0.24 0.13
European Union 304 551 798 1.069
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
As per the new directive set by EU, it is expected to maintain
a certain set of standards for the minimization of carbon emission
which is expected to go out of the limit which is prescribed because
of the highly biodiversified land of Malaysia. In addition to this,
indirect land use change because of planting the crops should also
be taken in to account which can increase the emission which can
cross the required threshold. There is a degree of risk thus there
is a possibility of Malaysian based palm oil biodiesel companied
can get disqualified for the Exports. Even though Malaysia is not
directly involved in exporting biodiesel to Europe but still they have
to position themselves in future in international market standard in
order to promote and liberate the free trading of palm oil biodiesel
subject to ISO.
4.2.3. Government incentives
On analyzing the production mechanism and the cost associated
with biodiesel production, one can infer that the profit drawn from
this segment is comparatively low which has hindered the growth
of the Malaysian biodiesel industry in domestic scale. Private sector
companies are generally profit oriented which are not focused in
operating a production which is of less profitability in the market
space. Unless the government enters in to the market to regulate
and motivate the private sector companies in the form of infras-
tructure, tax and reduction of commodity prices the private parties
will not promote the biodiesel growth in the domestic market. The
government has granted license for 91 Biodiesel companies under
the sponsorship of Investment Act 1986 with the privilege of pio-
neer status or ITA. The advantage of this status is that the license
owners can be granted a tax exemption on 70% of its income for five
consecutive years. Certain regions of Malaysia especially Peninsu-
lar Malaysia states are granted with a maximum of 100% exemption
on statutory income in promoting the trade across all the locations
in Malaysia.
In spite of introducing such a privilege, the Malaysian biodiesel
industry growth is moving backwards because of ineffectiveness
of policy, unrealistic goals and inevitable reaction from the govern-
ment failing to deal with dynamically changing commodity market.
The Licensed companies are not monitored frequently to ensure
that the standards and the proposed operational policies are main-
tained properly failing which the license should be cancelled.
Malaysia is an active member of RSPO; an organization to pro-
mote the growth and use of the sustainable palm oil [25]. Malaysia
needs to review the policy enforcement for biodiesel and tighten
the governance mechanism in accordance to RSPO guidelines to
motivate the biodiesel developers to sustain the growth of biodiesel
market. Malaysia palm oil industry is committed towards sustain-
able palm oil production and development; however there is a need
for strategies that will guide palm oil producers towards sustain-
able production and development [25].
The legal framework which has been established by Malaysian
government under Malaysian Biofuel Act 2006 was passed by the
Parliament in the year 2007. The Act contains provision on the stan-
dard for blending biofuel with the petroleum diesel which can be
amended by the ministry. The Implementation of B5 based methyl
ester biofuel has been introduced for government vehicles com-
menced from February 2009. Nationwide implementation of the
biodiesel usage is expected to be introduced before the end of 2010.
4.2.4. Research and development
Malaysia is currently one of the largest palm oil producers
where the nearest competitor production wise is Indonesia. The
palm oil cultivation in 2008 is estimated to about 4.48 million ha
of area for which 17.73 million tonnes were produced. Palm oil
and oil palm biomass are considered to be the major feedstock for
biodiesel and development in Malaysia. Biodiesel productions in
Malaysia were conducted in three different phases where the first
1947
generation palms biofuel which consists of palm biodiesel with
different characteristics. Normal grade biodiesel production was
started in 1981; winter grade biodiesel production was established
in 2001, RBD palm oil with petroleum diesel in a considerable
blend to form a mixture which can be used as an alternative to
diesel.
The development of winter grade palm oil was technological
innovation which overcame the possibility of using the biodiesel
for countries which has very low temperature. The Problem which
was faced by low temperature was the ignition was not as quick
in normal grade biodiesel where the low pour point of winter
grade biodiesel attracted the exports to the EU and other coun-
tries. The commercial production of winter grade biodiesel using a
patented process was established by MPOB in 2006. There demon-
stration plants were built by MPOB with a capacity to produce
about 60,000 tonnes per annum of normal grade biodiesel and
30,000 tonnes per annum of winter grade biodiesel. Malaysian
government has realized the potential of biodiesel for the future
hence, the per annum production of biodiesel and the infrastruc-
ture required for production are established sequentially. As per the
July 2009, census taken for the capacity of biodiesel plants estab-
lished in Malaysia under production is estimated to be 14 with
a total production of 1,972,000 tonnes per year yield. There are 5
more plants which are constructed which were able to yield about
250,000 tonnes per annum.
MPOB has established the research of decoding the DNA of the
palm oil seed in order to increase the yield by simulating the life
cycle of the palm fruit based on different stages of maturity. It was
observed that the pattern was matching the simulation for young
palm fruit but not for the matured ones. The research on the DNA
extraction is continuing which is expected to produce the ground
breaking innovation which can avoid in planting a huge area of land
for oil palm production, increasing the yield and reducing the cost.
The negative impact of genetic modification technology possibly
will continue to raise concerns for Malaysian government which
needs to be mitigated intelligently and efficiently in the future.
4.2.5. Feedstock for bio-diesel
On knowing the importance of the palm oil which is of abundant
quantity of supply from Malaysia, the market prices of approxi-
mately between 2500 and 2600 MYR indicating that using palm
oil as a feedstock for production of biodiesel will hit the Malaysian
economy. The major problem in using palm oil as feedstock are the
fluctuation in palm oil and crude oil prices, negative profit margin
from this segment and increase of vegetable oil prices in relation
with the palm oil since there is a diversified usage for palm oil in
variety of applications.
The possible ways forward to this scenario would be [26]:
i) vertical integration of palm biodiesel production;
ii) production of value added products from palm biodiesel;
iii) alternative feedstock in place of palm oil which can be easy to
be sustainable.
The allocation of 40% of annual production of palm oil will fuel
the increase in prices with demand to the vegetable oil which needs
to be mitigated by the Malaysian government or alternative feed-
stock such as jatropha, sunflower and soybean needs to be used
as alternative feedstock for production of biodiesel. From the cur-
rent policy and projections set by EU, it is clear that many of the
Malaysian biodiesel producers can be rejected by the preliminary
conditions of highly biodiversified land.
From the current competition India and China are progressing
vigorously to capture the market as this is considered to be a poten-
tial market for the future exports. Malaysia has already shifted the
focus from palm oil to the alternative feedstock called jatropha
1948 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
which is the feedstock used by other growing biodiesel producing
countries. Malaysian government must work hard to strengthen
the base of palm oil biodiesel industry and at the same time also
develop other feedstock to sustain the growth and competition
of biodiesel industry without focusing and heavily dependent on
one feedstock; palm oil for Malaysian biodiesel production. The
planning, efficiency and effectiveness of the government to change
their focus in palm oil biodiesel industry to a more advanced level
which includes multiple feedstocks for biodiesel production will
determine the growth and success of Malaysian biodiesel indus-
try.
4.3. Advantages of palm oil biodiesel for Malaysia
Palm oil biodiesel have brought lot of advantages to Malaysia
from social, technology, environmental and economy aspect. Palm
oil biodiesel is apt as the replacement for petrodiesel as it does
not require any engine modifications and reduces greenhouse
has emission [4]. The combustion of palm based biodiesel does
not increase the level of CO2 in the atmosphere. CO2 is one
such green house gas which is responsible for increasing the
global warming [11]. Hence, comparatively the world will have
more benefits in the using the palm oil biodiesel instead of
fossil fuels as engine fuel. Palm oil biodiesel has advantage of
having less engine emissions. However, study proved that palm
oil biodiesel releases considerable amount of NOx emission to
atmosphere [11]. Palm oil has more oxidation stability than Jat-
ropha and other biodiesel feedstock. The palm biodiesel would
increase NOx emission, however this can be reduced by 80–90%
with installation of catalytic converters in biodiesel powered
vehicles [27].
Palm oil biodiesel also has the advantage of being a sustainable
renewable energy, as the main raw stock; palm oil is a renew-
able resource on comparison with fossil fuels which will deplete
in near future as fossil fuels are non-renewable resource. Palm oil
can be sustained by re planting the palm seeds to restore the palm
plantation.
Another advantage that palm oil biodiesel industry has brought
upon Malaysia is the technology development. Palm oil biodiesel
industry in Malaysia has achieved a ground breaking technological
innovation by developing winter grade biodiesel which is suitable
for operations in countries where the pour point is low. The pro-
duction cost for palm oil biodiesel is lower compared to fossil fuels
giving the cost advantage for the palm oil biodiesel.
Palm oil biofuel are biodegradable meaning they are safe to han-
dle. Any spill over will be easier and cheaper to clean up which
is not the case with fossil fuels. In the economy aspect, palm
biodiesel provides major revenue in the form of exports contribut-
ing to the growth domestic product of Malaysia. The infrastructure
for palm oil biodiesel is already setup in order to produce about
60,000 tonnes of normal palm oil and 30,000 tonnes of winter grade
palm oil. Research and development centers are established in the
form of MPOB and MPOC which is frequently reviewing the new
product developments [13].
This is an important and crucial solution for environmental
problems as it is more suitable for the current world energy sce-
nario. Palm oil biodiesel brings energy security, environmental
stability and also rural development for the country by reducing
the dependency on petrodiesel, shifting to agricultural industry [2].
In social aspect, palm biodiesel brings advantages as the industry
provides job opportunity and social developments to rural area
residents as they become important part of the palm biodiesel
industry. The development in the industry indirectly helps to
increase the living standard of the villagers in Malaysia whom
mostly are palm tree estate workers.
4.4. Disadvantages of palm oil biodiesel for Malaysia
As discussed earlier topic, palm biodiesel brings many advan-
tages to Malaysia. However, not all is good in the palm biodiesel
industry in Malaysia. There are few disadvantages in the palm
biodiesel industry such as the negative effect on the environ-
ment. One main negative impact of palm oil biodiesel industry is
deforestation. Deforestation of forest land for the use of palm oil
plantation is causing negative impact to the environmental balance
for Malaysia in the ecosystem [25]. Surge in palm biodiesel industry
have created a roadblock for the effort for rainforest conservation in
Southeast Asia as people are interested in making money by turn-
ing it into palm plantations rather than reserving them as forest to
preserve the environment.
Also, the plantation of palm oil has begun to spread nationwide
due to development of palm oil biodiesel. This is causing endan-
germent to exotic animals like orang utan extinction as the animal
species has begun to reduce with the increased land usage for palm
plantation [25]. It is estimated that palm oil plantations area usually
will have the capability to host approximately 15% of flora and fauna
species. There are usually more species in undisturbed rainforest
compared to disturbed forests or other plantations [28].
When palm plantations are built replacing forests, huge sacri-
fices are made in terms of environmental balance as carbon stocks
cycles are disturbed. It takes extreme long carbon payback time
when palm plantation replaces forests and peat lands which has
abundant supply of carbon. Even when plantations are built in
normal lands filled with grass, clearing process will release large
amount carbon that can only be equalized by years of carbon sav-
ings provided by usage of palm oil biodiesel in transportations [28].
Also, reduction of CO2 emissions by palm biodiesel may well be
varied with actual implementation [29]. So, the claim of environ-
mentally friendly palm biodiesel is not valid if palm biodiesel is not
used with correct practice [10].
Almost 40% of palm oil produced in Malaysia was reserved for
biodiesel. This was causing competition between food industry and
fuel industry for palm oil as their raw stock. Palm oil reservation for
biodiesel cause heavy increase in the demand for vegetable oil for
the remaining sixty percent. There is a possibility that the vegetable
oil prices can beat the palm oil prices in the near future. There is a
huge challenge Malaysia facing in keeping sufficient palm oil as raw
stock for biodiesel and edible oil simultaneously to ensure food and
energy security. High and fluctuating CPO prices causes’ low profit
or negative profit margins for palm oil biodiesel producers as the
production cost is relatively high. In recent development, EU policy
on the environmental pollution control measures may disqualify
many of the Malaysian biodiesel producing companies. In the other
hand, there are tough competition exist in the industry as Malaysia
is not the only major producer, where Indonesia is equally produc-
ing biodiesel with increased land usage. In the year 2006, Indonesia
topped the production thus moving Malaysia to the second largest
producer. This may happen again if Malaysia biodiesel producers
fail to secure the business from EU importers.
5. Conclusion and suggestions
5.1. Conclusion
In summary, biodiesel is an environmentally friendly fuel which
can be used in diesel engines without any modification. If the
biodiesel developed efficiently for energy purpose, it would benefit
the environment and the local people by creating job opportunity
and provision of modern energy carriers to rural people.
Biodiesel production is facing several issues and challenges like
tough global competition, feedstock issue, food versus fuel war, sus-
 S. Mekhilef et al. / Renewable and Sustainable Energy Reviews 15 (2011) 1937–1949
tainability, and limited land for use and deforestation. Malaysia is
far ahead in the development of palm biodiesel compared to all the
other countries in the race with current available infrastructure,
feedstock reserve and technological balance.
In current situation, Malaysia is sustaining all the challenges and
issues. In future, palm biodiesel might be replaced with other feed-
stock diesel or biomass energy as palm diesel may face feedstock
availability issue.
5.2. Future of biodiesel
Biodiesel fuel is being recognized and boasted as the alternative
fuel that would replace fossil fuel satisfying the world transporta-
tion need and at the same time bring benefit to environment. Since
the developed countries started realizing the depletion of fossil
fuels which is estimated to dry up in 50 years time, the race for sus-
tainable biodiesel production has begun. The advantages which are
given by biodiesel apart from sustainable production; they reduce
the carbon emissions to a greater extent, adds more job opportuni-
ties pertaining to economy and environment, reduces the need for
import of fossil fuel, increases the vegetable oil supplies which in
return reduces its costs. Biodiesel has substantial carbon benefits
and the best ratio of energy input to energy output of any liquid
fuel. Biodiesel is already one of the most environmentally friendly
fuels available, and as the industries are growing to greater extent,
biodiesel continue to play important role in benefitting the envi-
ronment. According to U.S. Department of Agriculture and Energy,
biodiesel has potential of reducing CO2 life cycle about 78%. The
biodiesel diesel considerably reduces emissions and residuals such
as unburned hydrocarbon and carbon monoxide to atmosphere
[10].
Crude palm oil as a feedstock for the future of biodiesel indus-
try is subject to disadvantages for Malaysia as the CPO prices are
grown to be too high thus escalating the other oil prices in the
commodity market, low profit margin since 90% of the production
cost has to be allocated for the palm oil feedstock and the prior-
ity given by the Malaysian government to devote 40% of the total
palm oil production for biodiesel production. The disadvantages
with current palm oil biodiesel has made the Malaysian govern-
ment to reassess the feedstock for production of biodiesel with
a registered blend, research has already begun for the alternative
feedstock. The safe replacement and cheaper feedstock after palm
oil is called “Jatropha Curcus Linn”, which has already been used
by the Japanese at the time of World War II in order to serve as
ignition fuel for the aircrafts which were operating at that point of
time.
The main reason for using Jatropha seeds instead of other lin-
seed oil, groundnut oil and soy oil is because of the environmental
property which does not affect the nature. Jatropha is non-edible oil
which makes it an advantage as biodiesel industry would not have
to compete with food industry for its oil. Plantation for jatropha can
be easily started in non-cropped insignificant lands and wastelands.
These characteristics make Jatropha highly regarded as the second
generation biodiesel [30]. Already developed countries use jatropha
to mix with the petrol in order to arrive at a standard blend. The age
of jatropha tree will be for a minimum of 25 years making it easier to
be renewable from there on. Undoubtedly Malaysia is going to focus
on Jatropha for the following factors; lower production cost, bar-
rier for escalation of vegetable oil prices in accordance with palm
oil, addresses the global demand for biodiesel since Malaysia and
Indonesia are the top global biodiesel suppliers. This provides a safe
1949
environment by cutting down the carbon emissions. Jatropha can
be further developed and mass oil production will bring a positive
growth and development for biodiesel. Jatropha oil biodiesel has
high potential to be the next sustainable energy security for future.
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